Pension reforms major risk - and opportunity - for IFAs

The increasingly effective APFA suggests 60,000 clients have been turned away by roughly half of advisers, partly due to segmentation. This is part of APFA’s argument for a reduction in regulatory fees – and it is a strong one.

By way of riposte, the FCA argues that adviser numbers have grown, although we don’t know from what base. It also says adviser income is up roughly 5 per cent, reflecting the willingness of those with assets, even relatively small amounts, to pay fees.

If we continue further in this direction the state will increasingly become an enabler at most and an insurer of the last resort at best

It doesn’t settle any arguments, however. It is quite possible that adviser numbers fell significantly as a consequence of the RDR, depending where you base things; that numbers then increased to some extent as adviser businesses adjusted to the new regime and the back-markers got their exams; that fee income increased a little; and that many clients with fewer assets were turned away or even ‘sacked’. However, it is difficult to make a final judgement without knowing the pre-RDR numbers.

Investment advisers may be concerned that the regulator is rebutting arguments that could eventually lead to a reduction in fees. But if it means their businesses have achieved some sort of equilibrium, they might well be content with the broader picture.

From there, it may well be possible to grow, certainly if an advice business is focused on the retail market (although the department for work and pensions continues to stir up a huge amount of turmoil in the workplace market).

That said, the good news is that many advisers are in reasonable shape one year into the ‘revolution’. However, there is one risk I think is underestimated by investment advisers, namely that the sector becomes irrelevant to wider society.

By far and away the biggest news in financial advice ought to have been the announcement of the rapid increase in the state retirement age. It is likely to move beyond 70 rapidly, and politicians have been relatively quiet about it. The government, employers and individuals may soon realise it is not simply a matter of attaching someone’s age to increasing life expectancy, certainly not if people’s ability to work does not increase at the same rate.

Advisers will, of course, be discussing this with their existing clients. Yet, if we continue further in this direction across a range of policy areas, the state will increasingly become an enabler at most and an insurer of the last resort at best.

That may have to happen because of the demographic challenges we face – not that any political party is spelling this out properly to the electorate.

It should be the cue for investment advisers to demonstrate their worth: they have most of the best arguments about insuring, saving and investing.

But what if the problem involves people who fall, mostly, into an unprofitable segment? For all its drawbacks, they might not have been unreachable under the commission system.

It is clear that regulators and politicians are not helping – if anything, they are making things worse. But if advisers can find a way to offer solutions to this biggest of challenges, then they may start winning a lot of smaller arguments as well.

John Lappin blogs about industry issues at www.themoneydebate.co.uk